Stagflation strikes

India’s wholesale price based inflation surged to 6.1 percent in August, the sharpest pace in six months, driven by 245 percent jump in onion prices, making it difficult for the central bank to cut rates in the policy review due later this week.

According to official data released Monday, the headline inflation, measured in terms of the Wholesale Price Index (WPI), accelerated to 6.1 percent in August as against 5.79 percent in July.

Inflation was recorded at 8.01 percent during the corresponding month of the previous year, according to data released here by the ministry of commerce and industry.

There was a steep rise in food prices. Food inflation jumped to 18.18 percent in August as compared to 9.34 percent recorded in the corresponding month of last year. Food inflation was 11.9 percent in July this year.
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“The revival of inflation especially that of food prices, calls for urgent steps to address supply side bottlenecks which have been plaguing the sector,” said Chandrajit Banerjee, director general, Confederation of Indian Industry (CII).

However, he said the rise in inflation should not come in the way of cutting rates by the central bank in the forthcoming monetary policy.

The Reserve Bank of India (RBI) is scheduled to announce its monetary policy Sep 20.

“While keeping inflation under check has to be a priority, it is imperative that we continue efforts to rekindle investor sentiment and push for higher growth,” said FICCI secretary general A. Didar Singh, emphasizing on the need for rate cuts in the forthcoming policy review.

A wide cross section of people seem to believe that controlling money supply is unlikely to affect this inflation.